Made in China - China sneezes and the world catches a cold!

With China at the epicentre of the controversies originating due to the Corona virus pandemic, global supply chains are set for a major reshuffle as it exposes the vulnerability of many companies that rely heavily on China for most of the manufacturing needs.



Be it automobiles, electronics, pharmaceuticals, steel etc, companies all around the world are in evaluating safer and more economical places like Vietnam, Thailand, India, Mexico etc to set up their manufacturing units.


Companies who placed Chinese manufacturing facilities as the heart of their companies are now facing heart failures. 



From Apple, Nike, Harley Davidson, Panasonic, Samsung, Steve Madden, Asics, Skechers, Mazda etc a large movement of companies out of China has been observed over the past few years.



With rising labour costs, shortages of workforce, a trade war with the United States, the rise of manufacturing hubs in South-East Asia and now a pandemic that originated on its mainland it’s been evident for a while now that producing in China is no longer cost-effective and that China may not be able to retain its position as the world's largest factory in the post-Covid global economic order.



But there's one peculiarity of China that we need to understand. 
For decades China has done everything to ensure it becomes the manufacturing monopoly of the world. Then be it cheap loans, cheap labour, easy access to raw materials, ease of setting up factories, tax benefits, a great transportation infrastructure and even as much as ARTIFICIALLY devaluing its own currency to make Chinese exports more competitive. The Chinese government has done it all.

In this process China had prepared itself to be not only the most cheap but also the most efficient supply chain partners for any company around the globe.



China has become like a large manufacturing assembly line. Right from the basic raw material to intermediate goods to manufacturing equipment to final product, China had set up manufacturing units of all of them up very systematically to ensure the most effective production capacity in the world. Imagine it to be a theory similar to what Henry Ford explained while developing an assembly line for automobile manufacturing to cut costs of its Model T from $850 to $300 (but this time at a global level) and even as explained in the movie The Founder about Mc Donald's saving time by avoiding unnecessary movements etc.
China has pampered these companies for decades with these perquisites.



Hence with these important factors in mind, its going to be a tough time for companies to evaluate other places to set up their manufacturing plants. It is not easy to build a seamless supply chain overnight, identify trade partners. ensuring manufacturing capacity while maintaining a balance between the costs and the quality of your product and not to forget the billions of dollars that these cash craving companies will have to spend in order to do so.

So, a major change post-Covid will hopefully result in diversification, rather than monopolization of wealth and resources.

Emerging economies have a real opportunity to surge ahead and try to catch up with China in this new world order. The US, on the other hand, has the benefit of lessening their dependence on China which will be a huge boost for them politically, economically and strategically. 

But until then its reasonable to assume that China will remain world manufacturing’s center of gravity for the foreseeable future.